Time to Get It Right: An Examination of Post-Acquisition Fair Value Adjustments

Forthcoming Journal of Financial Reporting https://doi.org/10.2308/JFR-2018-0022

Posted: 11 Sep 2018 Last revised: 20 Jan 2021

See all articles by Matthew Kubic

Matthew Kubic

University of Texas at Austin

Date Written: January 14, 2020

Abstract

I examine the role of preparer information gathering and processing constraints in fair value measurement. Using two business combination samples, I investigate whether acquirers adjust the initial fair value measurements of identifiable assets and liabilities during the one-year measurement period permitted by FASB Statement 141(R). Empirical proxies for preparers' information gathering and processing costs explain variation in the incidence and magnitude of measurement period adjustments (MPAs). I classify abnormally large MPAs that allow firms to exceed the consensus analyst forecast as suspect adjustments. Suspect adjustments exhibit little association with earnings management incentives and no association with future goodwill impairment. Overall, the results suggest that acquirers use the measurement period when there are concerns about the quality or availability of information, consistent with the FASB's intentions.

Keywords: acquisition, earnings management, fair value measurement, goodwill, information gathering, information processing

Suggested Citation

Kubic, Matthew, Time to Get It Right: An Examination of Post-Acquisition Fair Value Adjustments (January 14, 2020). Forthcoming Journal of Financial Reporting https://doi.org/10.2308/JFR-2018-0022 , Available at SSRN: https://ssrn.com/abstract=3240660 or http://dx.doi.org/10.2139/ssrn.3240660

Matthew Kubic (Contact Author)

University of Texas at Austin ( email )

2317 Speedway
Austin, TX Texas 78712
United States

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